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Ashu Sagar, Secretary-General, Association of Oil & Gas Operators (AOGO)

22 May 2014

Ashu Sagar, Secretary-General, Association of Oil & Gas Operators (AOGO) speaks to Neeraj Dhankher on the key issues facing the oil and gas sector and the focus areas for the new government.

What, according to you, are the key issues in the oil and gas sector which needs urgent attention of the new government? How can the same be resolved?

The key issue in Oil & Gas and Sector is to create the confidence that the Government can be trusted to maintain the sanctity of contract, and that it genuinely believes that expediting the work to efficiently explore and maximize production are a National Priority and in the interests of Energy Security. During the last few years the Government has done all it could to make the industry suspect Government intent on all the above counts. During 2013, Government had taken proactive actions, in brain storming with industry on various issues. Jointly some solutions were proposed to issues which had been major job stoppers during the earlier years. Many of these were half way house solutions but indicated a sincere desire to trace a new path. Industry welcomed the effort and the Government commitment to implement the same within 2013. During a meeting with the Oil Minister in November 2013, the industry had boldly expressed a “cautious optimism” believing the Government commitments. In actual practice nothing was implemented. When one partner loses faith in the sincerity of the other partner, the key issue is obviously to restore that faith. If it is not done at the earliest, I am afraid the future of the contracts cannot be very bright.

The deferral of gas price hike by the Election Commission has met with lot of opposition. What are your views in this regard? Do you feel, the deferral could/should have been avoided?

There is a legitimate Government in position, which has all rights to take all decisions. It shall remain there till it resigns post the submission of election results by EC. Only in case of decisions that affect the Election process is it required to get the concurrence of the Election Commission. Before the elections were announced, the decision to implement Rangarajan Formula for Gas prices effective April 1, 2013 was announced and notified. The decision envisaged calculation of Gas Price according to the announced formula. The calculation based on this formula was to be carried out by a Government Department two weeks before the start of quarter which therefore falls on March 15, June 15, Sept 15 & December 15 of every year. The formula calculation involved no decision. It was essentially an arithmetic exercise. As no decision of any kind was envisaged, the decision to seek EC approval was misconceived and unnecessary. It seems that the election commission did not realize that there was no real decision involved. On the other hand deciding not to announce the calculation, shall effectively suspend sale on the contracts which were valid only till March 31, 2013. It would now require the Government to take a new decision, over-ruling the earlier CCEA decision that had been already notified. Now this new decision changing prices from Rangarajan Formula to earlier prices may need to be approved by EC. Thus we are in somewhat peculiar and uncertain position today on the legal status of various issues concerning gas prices and gas sales on the suspended contracts. This was wholly unnecessary and avoidable.

As a representative body of the upstream oil and gas industry in India, how do you assess the investor mood in India to be today?

As I have already mentioned, there is a lack of comfort in the Government honouring the sanctity of contract. Gas prices are just one of the many components of this situation. There are significant issues – to name a few mineral oil definition and tax, ring fencing or continuing exploration subsequent to the start of production which make little sense in an oil importing economy. If the Government does not think that it needs a benchmark for decision making, and is seen to uphold it, then it is unlikely that investors can feel comfortable and be brave enough to bid for new acreages.

How do you assess the development of shale gas in India so far under ONGC and OIL? Do you feel shale gas can contribute significantly to India’s energy basket?

Exploring tight rocks whether for Gas or Oil and whether Shale or Sandstone is a new ball game. There is no magic lamp that you can rub utter “Open Sesame” and the Genie shall start the flow of Shale Gas. It doesn’t matter whether company prospecting is ONGC or OIL or a private company whether Indian or Foreign. If we want to explore “Tight Rocks” on a meaningful scale – we need a “mission czar”, who understands the “Macro Issues” and has the authority to move across the Ministries and Governments, and bring them to a table to solve these in a time bound manner. The “Stake holder” and the “Societal & Environment” issues are too large to be solved through a drift, or by any one company, as it seems to be happening at present. We don’t know what contribution “Indian Shale Gas” shall make to Indian Energy Basket. We don’t know when it shall make the contribution. We also don’t know anyone who seems to know the answer to it. where the rate of return on risk capital is most attractive. At the present there are more attractive destinations.

What kind of technological innovations and interventions are required to tap the Indian sedimentary basin for oil and gas? How can the private sector contribute in this regard?

We have not yet seen a company not being able to procure a technology provided it was willing to pay the price. What is required at this time are the “Operating Environment” measure like separating facilitation, regulation and policy making, providing a stable administrative and fiscal environment, transparency in decision making where all stakeholders can sit together and find solutions. On the other side it is most important to make exploration competitive. It requires strong measures to cut unnecessary costs and taxes on this part of the activity, as well as de-risking the Geology. Very little has been done in these areas, and what is proposed is on a very slow burner. Apparently we are not yet appreciating the full extent of our needs.

How do you see the LNG industry in India shaping? There has been an effort on the part of the government to involve domestic shipyards in manufacture of LNG ships. Do you feel it is a good move?

LNG is the short to medium term solution to balance the hydrocarbon basket, and sustain the growth. It has a higher certainty than frontier exploration. The Government needs to do all it can to encourage this industry, whether it is building transport or FSOs, Shared Regassification terminals, Pipelines, Dedicated consumption hubs etc. All we can say at this time that as long as USA and China keep finding and producing adequate Tight Rock Hydrocarbons, the global demand pressures shall moderate and we shall be able to import energy at relatively reasonable prices.

Companies like ONGC have not been able to increase input from its oil and gas fields for so many years, resulting in large scale import of both crude oil and gas. Do you feel domestic reserves are enough to cater to the increasing demand or looking for overseas equity a better option?

First of all, India has a very challenging Geology. Second, very small fraction of it is explored at all. Third, almost nothing can be said to be very well explored. Our well densities are amongst the lowest in the world. Fourth, there was a time whether current high production economies China were in the same boat. They made it a mission and got out of the situation by extraordinary measures. Whether we can do it or not is an open ended question, requiring political will to bite the bullet. There is however no doubt that it is a huge challenge that requires extraordinary measures. Equity Oil overseas is a huge relief against Forex impact on the country and should be pursued. It does not add anything to fulfill the domestic demand. For catering to domestic demand you need lot of money in USD to buy oil, and hope for a sustained peace and adequate global availability of Hydrocarbons to meet the global demand. To give equity oil the flavor of a strategic reserve, we need to diversify sources, encourage private equity in the game and most importantly create naval capacity to guard our sea lanes. The domestic production therefore has its own unique position, which equity oil cannot replace. As far as private capital is concerned, it shall go where the rate of return on risk capital is most attractive. At the present there are more attractive destinations.

What kind of technological innovations and interventions are required to tap the Indian sedimentary basin for oil and gas? How can the private sector contribute in this regard?

We have not yet seen a company not being able to procure a technology provided it was willing to pay the price. What is required at this time are the “Operating Environment” measure like separating facilitation, regulation and policy making, providing a stable administrative and fiscal environment, transparency in decision making where all stakeholders can sit together and find solutions. On the other side it is most important to make exploration competitive. It requires strong measures to cut unnecessary costs and taxes on this part of the activity, as well as de-risking the Geology. Very little has been done in these areas, and what is proposed is on a very slow burner. Apparently we are not yet appreciating the full extent of our needs.

How do you see the LNG industry in India shaping? There has been an effort on the part of the government to involve domestic shipyards in manufacture of LNG ships. Do you feel it is a good move?

LNG is the short to medium term solution to balance the hydrocarbon basket, and sustain the growth. It has a higher certainty than frontier exploration. The Government needs to do all it can to encourage this industry, whether it is building transport or FSOs, Shared Regassification terminals, Pipelines, Dedicated consumption hubs etc.